Tuesday, December 18, 2012

Except for your home page, About Us is probably the most popular page on your website. Potential customers will come here to find out if they want to do business with you. With that in mind, it is important to put your best efforts into writing this section. Sound obvious? If you think so, look at some of your competitors’ efforts. Most likely, their websites will feature a mix of industry jargon, clichés and claims of superiority – hardly compelling invitations to prospective clients. If you want to do outshine your competition, here are a few tips:

Here's what to DO:

Address the four Ws – who, what, where and why. Tell them:

who the business owner and key team members are;

what your business is about and what services/products you offer;

where the business is located and all contact information;

why the visitor to your website needs your services/products.

Keep it short, to the point and relevant. You can provide links to detailed sales/product information, company bios and press releases, but the About Us section has to be an easy, fast read.

Focus on customers’ needs, and how your business addresses those needs rather than proclaiming your own prowess. Let your readers know upfront what you can do for them. It might help to consider what questions you get from prospective customers and write your text with this in mind.

Go easy on the superlatives – excellent, cutting edge, well-respected, etc. This type of praise is best bestowed by a third party, perhaps in a testimonial or in an article linked to the webpage.

Be honest about who you are. If you’re a start-up, say so. Explain why this brings advantages to your customers (e.g. more personal attention from more experienced staffers, lower overheads, etc.)

Let visitors know who is behind the business. Let people know the story behind the company’s launch, and don’t be afraid to allow some personality to shine through. Use real photos of real people. Stock photos are easily identified and serve no purpose. Real shots of people working are much more effective. If these photos – with brief bios – are too unwieldy for the About Us page, provide a link to a biographies page.

And here's the the DONT'S:

Use jargon and clichés. Simple, plain language always wins the day. Be selective about including industry awards and business honors and certifications. If the accolade means something only within your particular business or industry, a prospective client won’t understand its significance.

Overwhelm readers with too much text. Have someone outside your business give you an honest assessment of your draft copy – its length, relevance and readability.

Let your About Us page get stale. Make someone responsible for keeping it current. If you add new expertise or product lines, open new locations or change contact information, make changes to the About Us page immediately.

Since this is the place where you win over or turn off prospective clients, make sure your About Us page showcases the strengths and character of your company.

Thursday, December 13, 2012

Now that President Obama has been re-elected, the debate over repealing his Obamacare legislation has ended and plans are under way to meet the law’s mandates by their respective dates. The following is a recap of the Patient Protection and Affordable Care Act of 2010 as it pertains to general mandates and employer coverage, cost and credits.

Coverage Mandates

Health care plans may no longer deny coverage due to pre-existing conditions or impose annual or lifetime limits on coverage. In addition, plans must cover basic preventive screenings such as checkups, mammograms and colonoscopies; coverage may not be cancelled after a member gets sick; and adult children may remain on their parent’s plan until age 26 (even if married or living away from home). Starting in 2014, the new rules require that all Americans purchase health insurance or pay a penalty tax.

Employer Coverage

Also starting in 2014, small businesses with less than 100 employees (96 percent of U.S. firms) will be able to take advantage of volume buying via insurance exchanges. According to data on healthcare.gov, small businesses currently pay an average of 18 percent more than large business for the same plan. But by creating a pool of individuals and small business employees, these exchanges will be able to offer more competitive pricing for plans that meet certain benefits and cost standards. In fact, members of Congress will receive their health care insurance through exchanges.
Employers with more than 50 full-time employees (averaging 30 hours per week) will be required to pay a shared responsibility fee ($2,000 each for all but 30 employees) if they do not provide affordable coverage relative to an employee’s household income.

Health insurers will be allowed to adjust rates based only on family members, age, tobacco use and employer location, which should help eliminate high premium increases from year to year.

A recent study by the Urban Institute asserts that had the Affordable Care Act requirements been in effect in 2012, overall they would have had a negligible impact on total employer-sponsored coverage and costs. In summary:

Small businesses (less than 50 workers) would be exempt from penalties yet eligible for premium tax credits. Likewise, employers with 100 or fewer workers would also be eligible for credits. If these employer groups had offered coverage, the average cost per insured would have been reduced by 7.3 percent and spending by 1.4 percent due to tax credits and competitive insurance exchanges.

Mid-size businesses (101 to 1,000 employees) would experience the highest cost, since many of these companies do not currently offer coverage. Including penalties for an estimated 5 percent of companies that would continue not to offer health insurance, new enrollment for coverage would increase spending by about 9.5 percent.

The cost for large employers (1,000 or more employees) would be impacted only by higher employee enrollment rates, which would increase total spending by about 4.3 percent.

Credits

Through 2013, business owners that provide health insurance for up to 25 employees who earn an average annual wage of less than $50,000 may qualify for a small business tax credit of up to 35 percent (up to 25 percent for nonprofits) to offset the cost of providing that insurance. The credit will increase to 50 percent and 35 percent respectively, effective January 1, 2014. Employers must contribute at least 50 percent of premiums in order to be eligible for the credit, which will also apply to dental and vision coverage. The maximum credit will be available to employers with 10 or fewer full-time equivalent employees with average annual wages of less than $25,000.

Clearly, the new health care laws are complex. The benefits or disadvantages will vary on a case-by-case basis for individuals and especially small to medium-sized businesses. Ultimately the goal is to provide health insurance for all. In turn, this coverage will hopefully eliminate the rising costs of providing medical care to the 50 million Americans (nearly one in six people) who are uninsured today.

Tuesday, December 11, 2012

The traditional path to fund a small business startup is to use personal savings and so-called sweat equity, followed by seed money from personal contacts, bank and Small Business Administration loans, and ultimately angel investors and venture capitalists. But with today’s credit crunch, the traditional path for financing is becoming more and more difficult to follow. Perhaps in response to these difficulties, other funding methods have become increasingly available to entrepreneurs, including microlending, crowdfunding and alternative lending companies. These unconventional financing vehicles do have risks, but some of their impressive success stories indicate that they can be a worthwhile avenue to explore.

Microlenders are organizations that make small loans at higher interest rates than banks to entrepreneurs who are unable to obtain financing from traditional lenders. They tend to take on greater risk, lending to people who lack collateral or have little prior experience. Most microlending takes place in developing nations, but many nonprofit microlending networks have now established themselves in the United States. In addition to financing, many microlenders such as the Accion U.S. Network promote mentoring relationships that help their clients connect with experts in the field and with other like-minded business professionals. Microlenders are especially valuable for minority and women-owned businesses that are unable to obtain traditional financing.

Crowdfunding refers to Internet-based businesses that provide online funding platforms to connect entrepreneurs with potential lenders. The entrepreneur puts his or her idea on the website and sets funding goals and deadlines. Visitors to the website can evaluate the idea and make a contribution if they like it. In exchange for the promotion, the websites keep a percentage of the funds raised. The goal for the entrepreneur is to get small contributions from a large number of individuals. Because banks typically do not provide loans for unproven projects, crowdfunding sites such as Kickstarter have proven to be especially valuable at identifying underserved markets. However, the public nature of the funding platform can end up putting excessive pressure on the entrepreneurs to meet their goals. Although some online forums can be very supportive, anonymous website comments can be vicious. Entrepreneurs also take a risk by sharing their ideas and products with the public before they have taken hold in the market. It is vital that would-be entrepreneurs perform a thorough risk assessment before trying crowdfunding; and if they receive funding, they must carefully manage the expectations of their investors.

Finally, alternative lending companies such as On Deck have proliferated on the Internet in recent years. These organizations offer alternatives to bank loans by looking beyond the owners’ personal credit record to the business’ cash flow and the ability to make timely bill payments. They offer extremely fast decisions on whether to fund the enterprise and equally rapid access to the capital once a loan is approved. Alternative lending companies typically lend relatively small amounts for short time periods, often no more than 18 months, but can have competitive lending rates. Repayment of the loan is usually not a typical monthly payment, however. Some alternative lending companies make daily withdrawals from the business’ bank account or the client sells a portion of future credit card receivables to the lending company to pay back the loan. For this reason, only businesses with strong cash flows are encouraged to explore this lending avenue.

When starting or continuing a business, everything comes down to risk assessment, both for the business itself and for its financing partners. If the typical funding options are not available or are exhausted, there are alternatives. Seasoned professionals are also available to help small business owners assess their risks and weigh the pros and cons of various finding avenues.

These are some of the many arguments used by tax protesters to justify their failure to file or pay federal income taxes. The theories are varied and often creative, but the results are not: the failure to properly file and pay federal income tax will result in civil penalties, criminal convictions and jail time.

Actor Wesley Snipes did not file a tax return from 1999 to 2001 despite earning more than $38 million in those years, according to prosecutors. He tried to rely on the so-called “861 argument” from the tax denier movement, which holds that wages are not listed as taxable in section 861 of the Internal Revenue Code. However, the argument has never succeeded in the courts. He was convicted of three misdemeanor willful failure to file charges in 2010 and celebrated his 50th birthday in prison in Pennsylvania last summer.

Snipes is one of many who have fallen victim to the claims of promoters of such schemes. The IRS can bring criminal charges against promoters who encourage people to adopt frivolous tax positions, including tax lawyers, accountants and organizers of tax protests, but taxpayers who adopt these frivolous tax positions often face harsher penalties than those who promote them. In Snipes’ case, however, the mastermind behind the scheme was sentenced to 10 years.

Snipes allegedly relied on several of the tax denier arguments. Prosecutors claimed that he filed claims for tax refunds of more than $11 million for 1996 and 1997 and sent three worthless “bills of exchange” in the amount $14 million as tax payments. After being indicted, Snipes sent a letter in which he claimed he was a non-resident alien of the United States and therefore not subject to its tax laws.

With the proliferation of the Internet and YouTube, more and more people are exposed to tax deniers’ claims and many fall under their tantalizing spell. But relying on the advice of others is not a defense, as Snipes learned the hard way.

The penalties the IRS has at its disposal are numerous. On the civil side, they start with an accuracy-related penalty (20 percent of an underpayment) and become progressively more serious. The civil fraud penalty is 75 percent of an underpayment. There is an erroneous claim for refund penalty of 20 percent of the excessive amount. Late-filed returns with frivolous positions are subject to the fraudulent failure to file a timely return penalty (triple the amount of the standard failure to file) and there is a $5,000 penalty for other frivolous submissions to the IRS. In addition, the Tax Court can impose a $25,000 penalty if a taxpayer institutes a proceeding primarily as a delay tactic.

The IRS can also instigate criminal proceedings. It is a felony to attempt to evade a tax or to willfully sign a return or other document that the taxpayer does not believe to be correct. Penalties include six-figure fines and three to five years imprisonment.

Nobody likes to pay their income tax, but there are plenty of quality tax professionals who can legally help to minimize your tax burden. Don’t end up like Wesley Snipes. If you are presented with a tax position that sounds too good to be true, it probably is.

Tuesday, December 4, 2012

With so many tax laws up in the air, year-end tax planning is more challenging than ever this year. Changes to the tax code are on the horizon, and almost all taxpayers will be affected if the Bush-era tax deductions and credits are allowed to expire. But let’s not forget that many of the tax changes proposed by President Obama will benefit the majority of taxpayers.

Amid the uncertainty, we can be sure of a couple of things:

The fiscal cliff, the national debt ceiling and tax issues are all intertwined. Watching developments in the news will help you and your tax advisor develop a tax strategy for the next few months.

Changes are coming. It is essential that taxpayers sit down with their professional tax advisors to determine what anticipatory planning and actions to take before this year ends. Getting ready now means you will be prepared when tax policy changes are announced. Furthermore, you will be in a position to take full advantage of new policies.

Nothing is certain (at the time this is being written). Some Bush-era tax breaks might be extended; however, estate and gift tax rates are expected to be higher, and an additional 27 million taxpayers could get caught up in the Alternative Minimum Tax loophole if the patch is not extended. Other credits considered to be endangered include deductions for state and local sales taxes, mortgage insurance premiums, college tuition and fees, as well as changes to the student loan interest deduction and the expiration of the American Opportunity Credit for Students.

Here are some actions to ponder before year’s end. All these ideas should be discussed with your professional tax advisor before you take action.

Consider transferring a business or cashing out certain investment holdings to record as much future income as possible on this year’s balance sheet. Wealthy investors are planning payouts timed to take advantage of current dividend rates and selling stock and businesses.

Consider making year-end charitable donations of appreciated stock (rather than cash). This allows a taxpayer to avoid paying tax on the appreciation value but to still deduct the full value of the charitable gift on the 2012 return.

List all the major life changes that occurred in 2012 that might affect your tax return. This list might include a spouse retiring, job hunting, volunteer work, buying/selling a home, etc. Gather all your tax documents, charity receipts and a copy of last year’s return.

Gather all your charitable contribution documentation. If you can’t support the charitable donations you claim, you might lose them. If they are under $250, make sure you have a bank record that supports the donation (e.g. a canceled check) or a written statement from the charity that meets the tax law requirements. If the donation exceeds $250, you’ll need a statement from the charitable organization showing the amount donated plus a statement that indicates that no goods or services were provided in return for the donation.

Leverage the 15 percent capital gains rate before it’s gone. With capital gains tax rates expected to increase to 20 percent from 15 percent, and with an additional 3.8 percent Medicare contribution tax on net investment income possible for some high income taxpayers in 2013, it makes sense for some taxpayers to sell assets (stocks or vacation homes) owned for more than one year before year’s end.

Perhaps no tax season in recent memory has been fraught with so many uncertainties – expiring tax laws, tax policy changes and possible last-minute legislative action. With this in mind, get a handle on as much as you can right now. Gather information and sit down as soon as possible with your tax planner. It’s going to take extra care to make sure you leave no money on the table for Uncle Sam in 2013.

Tuesday, November 27, 2012

Trying to make business or investment decisions based on whether the Bush tax cuts will expire on Dec. 31 is like rolling the dice. But there is little or no speculation required when it comes to the taxes needed to fund President Obama’s health care overhaul. Regardless of who wins the presidential election, new taxes on investment income and a boost in payroll tax are slated for 2013. The new taxes are expected to yield $210 billion over a decade to help fund the health care law, which aims to expand insurance coverage to more than 32 million Americans. Here’s an overview of how the new levies will be imposed as of Jan. 1, 2013. It is estimated that about 4 percent of the tax-paying population will be affected by the new health care law levies:

A 0.9 percent boost in payroll taxes for individuals earning more than $200,000 a year or households earning more than $250,000;

A 3.8 percent tax increase on investment income for individuals earning more than $200,000 a year or households earning more than $250,000.

Higher-income taxpayers and business owners would be wise to have strategies in place to shelter their investment and other types of incomes – as much as the law permits – well before year-end.

Bearing in mind the complexity of the 70,000-page tax code and the specific considerations of individual taxpayers, there is no one-size-fits-all strategy. However, there are some basic tips that might alleviate the blow and some information on gray areas. As always, your tax strategy should be developed in consultation with a qualified professional tax advisor.

Timing a Sale

If you are in the midst of selling a business, finish the deal by year-end to pre-empt the additional tax hit. Likewise, if you are already planning to offload a large single stock position in the next five years to free up some cash, try to do it before Dec. 31. Real estate sales are also subject to the new investment income levy, but bear in mind there’s no change to the tax exemptions allowed on primary residences.

Miscellaneous

Depending on the individual taxpayer’s circumstances, other avenues should be explored, including cashing in gains in 2012 rather than next year and moving business profits into capital expenditures not subject to taxation.

As it stands now, the 3.8 percent tax will be levied in addition to the existing 15 percent rate on income from capital gains, dividends and other investments for those in the $200,000-plus salary bracket. The law does make an exception to the new 3.8 percent tax on investment if the income is earned in the ordinary course of a trade or business. Whether the income is classified as wages or investment income hinges on how the new law characterizes the provider of the service. This is where the law gets into a gray area, which tax professionals don’t expect to see clarified until after the election. This issue affects business partnerships involving, for example, real estate, law and private equity management firms (like Bain Capital, the firm co-founded by Mitt Romney) – businesses where profits are dispensed as distributions to partners and not as wages.

Deferred compensation plans are another area needing further clarification. So far, more input from the Internal Revenue Service is required to determine if the investment built up in such plans will be subject to the new 3.8 percent investment tax.

Tax professionals will be hard at work devising appropriate strategies as soon as the IRS spells out exactly how the new taxes will be applied. Be sure to consult your tax professional to determine how these new health care taxes will affect you.

Thursday, November 22, 2012

LinkedIn can be a powerful tool for making business connections, but its effectiveness is up to you and is dependent on the effort you are willing to put into presenting your information and keeping the data current. If you haven’t taken the time to review your profile lately, now would be a good time. At the end of the summer, LinkedIn rolled out a new look that reduces or relegates profile information to less prominent locations. You might want to look at how this has affected your profile and – if necessary – revise certain sections to put the information you consider most important up front and clearly visible. Here are some ideas to consider:

Why are you participating in LinkedIn? To find new business; to be visible to new employers; to find new employees? Make sure you know why you are networking, and who you are trying to reach. LinkedIn should be part of your professional goals and your marketing efforts.

Use a professional headshot. This has always been important; and even more so now because LinkedIn has given more space to your profile photo. Use a good quality, professional looking shot of your face – not a recent snapshot from a social event. If you don’t want recruiters or others to see your face next to your credentials, change your privacy settings so that only your connections are permitted to view your photo.

Maximize the impact your headline delivers. LinkedIn has lopped off the full synopsis of the work history, recommendations and educational experience section, and so your headline has to work even harder to grab a reader’s attention. The headline doesn’t have to be your job title. Consider key words that apply to you, and use your job title only if it is helpful.

The summary section is now much more prominent. Make the first few sentences really count. This summary should be about you – not your company. If your website is important, you might include a link here, as well as in the contact section (see below), because the link to your website is no longer displayed on your profile page. To avoid sounding self-serving, itemize the key tasks you manage on a daily basis and the measurable results you have attained over the past year.

The contact information section is like your business card. Include all ways that people can reach you – email, phone, instant messaging, address, etc. LinkedIn has relegated website information (formerly upfront) to the contact section, and it might be appropriate to include it in the summary, too (see above), if you consider it an important marketing tool.

Connect with care. Your network is only as useful as the strength of your contacts. Some people appear to send out invites to everyone on their email list (as they do with Facebook). If you ask to connect with someone who might not know you well professionally, consider sending a note explaining why you think connecting might be mutually advantageous.

Finally, invest a little time to explore groups that might be useful to you. There are some valuable industry and professional support groups that can be especially helpful to owners of small businesses or sole proprietors.

Tuesday, November 20, 2012

One day, we might find ourselves looking back at 2012 as the grand old days of tax planning. While the 2010 Tax Relief Act’s lower rates could be extended next year, it is likely some tax breaks will hit the chopping block, be it specific deductions or investment income. Furthermore, the 2 percent payroll tax cut we currently enjoy will probably go away, with an additional 0.9 percent Medicare surtax scheduled to take its place.

If possible, this is an ideal time to see if you can accelerate any 2013 income into this year by paying yourself future compensation in advance or conducting a Roth IRA conversion.

The Bush tax cuts reduced the capital gains tax rate from 20 percent to 15 percent – a rate scheduled to return to 20 percent at year’s end. Taxes on dividends are also scheduled to return to ordinary income rates in 2013, with a top rate as high as 39.6 percent. Thus, if you have any highly appreciated assets or dividend-producing investments you’ve thought about selling to take and reposition profits, this would be a good time to do so. You have until year-end to sell and be liable at the lower tax rates; if you wait until next year, your liability will likely increase substantially.

How much will it increase? In addition to the rates scheduled to return, the capital gains tax will be subject to an additional 3.8 percent Medicare tax imposed by the Health Care and Education Reconciliation Act of 2010 for single taxpayers with income over $200,000 ($250,000 for married taxpayers). This means that starting on Jan. 1, 2013, the total capital gains tax rate will increase to 23.8 percent.

Estate Planning

From an estate planning perspective, today’s higher gift tax exclusions make 2012 a particularly good year to take advantage of the higher limits for lifetime gifts to children and grandchildren. Currently, the estate and lifetime gift tax exemptions are $5.12 million per person ($10.24 million per couple) with a 35 percent top tax rate on amounts that exceed those thresholds. Beginning in 2013, these exemptions are scheduled to drop to $1 million per person ($2 million per couple) with the potential top tax rate of 55 percent.
Consider that making gifts during your lifetime offers several advantages:

The assets you transfer while still alive are removed from your estate (and subsequent estate taxes).

Any future appreciation that could be earned by these assets would also be removed from your estate.

That potential future income is shifted to your loved ones, who may be able to keep more of the income generated if they are in a lower income tax bracket.

The transferred assets and their subsequent appreciation would also be protected from potential creditors, lawsuits or divorce proceedings.

If you are interested in making a substantial gift but are uncomfortable relinquishing complete control over the assets, consider placing your gift in a trust. Speaking of which, you can use a trust strategy to benefit from today’s lower real estate values. For example, you could transfer a piece of property – such as a family vacation home – to a Qualified Personal Residence Trust (QPRT). The present-day value of the home is considered a taxable gift that would count against your $5.12 million lifetime gift tax exemption. If you are still alive when the QPRT term expires, ownership of the property would transfer to your heirs without incurring gift or estate tax consequences. Note, however, that should you die before the term is up, the property would remain part of your estate and be subject to estate taxes.

The current favorable tax environment offers many strategies that can help you position your assets for the future. Regardless of who sits in the White House next term, it might be wise to take advantage of today’s lower rates before they are scheduled to expire at the end of the year. Be sure to consult with a tax advisor and/or experienced estate planner to see which year-end strategies would work best for your situation.

Thursday, November 15, 2012

According to a recent survey by the New York Stock Exchange, more than half of small businesses cannot get access to the credit they need. As a result, two-thirds of these small business owners do not expect to add jobs in 2013. In light of the ongoing credit crunch from the Great Recession, small business owners have to refine their borrowing strategies in order to increase their chances of finding the funding to continue growing.

The credit crunch has hit small business owners especially hard in recent years. Another survey by the Federal Reserve Bank of New York recently found that only 13 percent of small business owners who applied for credit received the full amount they requested. Often, banks will restrict loan amounts to 25 percent of yearly gross revenue and devalue small businesses’ financial statements by as much as 30 percent. Even Small Business Administration loans have become arduous – borrowers often have to wait for a separate valuation of their business by the SBA even after the borrower has already paid for a professional valuation and their bank has approved the loan.

A small business needs to do serious research and present itself in the best possible light when applying for a loan in the current market conditions. In the past, small business owners were advised to cultivate a close relationship with only one financial institution. Although it remains true that small businesses should continue to cultivate those relationships, they should also look to other lenders – especially in this climate. Flexibility and a backup plan are vital for small businesses, and competitive pressure on lenders to give the business a good deal can only help.

Small business owners can research lenders in their area by asking for borrower references, talking to people who have done business with the lenders in the past, finding out how different lenders perform at simple services such as processing payments, and getting opinions from other customers about a bank’s flexibility. Loan brokers, financial advisers, accountants and local attorneys can all share valuable information as a result of their working relationships with multiple lenders.

A small business should also make sure its own affairs are in order before applying for a loan. Every business needs a carefully articulated business plan that will help reduce a lender’s uncertainty about the level of risk. The owner should also be prepared to explain any past credit blemishes that could be an issue. It is always better to be proactive about past difficulties – identify the problem and explain how you survived it. Turning past difficulties into a success story instead of a failure will encourage a potential partner to share in the firm’s future growth.

A small business owner should also be prepared with a statement explaining the owner’s personal financial status. Lenders will be interested in how much money the owner is personally willing to invest in the business, including as collateral for a loan. This will show the owner’s commitment to the enterprise and will help the lender assess the amount of risk. Lenders will also evaluate the owner’s experience, background and expertise as part of the risk evaluation.

Small business owners must be aware of their credit rating and attempt to repair any credit blemishes before applying for a business loan. They should have financials, cash flow projections and past business tax returns available for examination. Finally, with lenders being so cautious about risk, small business owners ought to anticipate site visits by prospective lenders. Make sure that financials are in order and work spaces look professional. In addition, lenders today will check social media on prospective borrowers as part of their risk assessment. Owners have to ensure that Twitter and Facebook accounts reflect favorably on their business.

Today’s business climate is especially difficult for small businesses. But with a few common sense steps and thorough preparation, small business owners can get the credit they need to succeed and grow their business. Professionals are available to help get a firm’s house in order and provide valuable advice.

Tuesday, November 13, 2012

When a married couple files a joint tax return, each spouse is legally responsible for the entire tax liability, even if only one of the spouses is responsible for the failure to pay. Known as joint and several liability, this legal concept still applies after a divorce and even in cases of misrepresentation or fraud. In the past, the IRS offered Innocent Spouse Relief in order to protect a spouse who did not know or have reason to know that an understated tax existed. Last year, the IRS announced a revision of the Innocent Spouse Relief program so that knowledge that the tax return was incorrect is no longer fatal to a claim for relief.

When taxpayers sign their tax returns, they are declaring to the IRS that their return is correct. With a joint tax return filed by a married couple, both spouses are responsible for the entire amount due, meaning that if the IRS later determines that a joint return was incorrect, it can go after either spouse for the entire amount of any additional tax, interest and penalties. The IRS is not even bound by a divorce decree stating that only one of the spouses is solely responsible for back taxes.

Recognizing this possible injustice, the IRS has offered various forms of Innocent Spouse Relief since 1971. However, the program has had several restrictions. For instance, relief was denied for spouses who knew or had reason to know that they signed an incorrect return, even if the signature was made under duress. In addition, to apply for relief, the IRS imposed a two-year statute of limitations from the date on which the IRS first contacted the innocent spouse to collect the tax. Because of these restrictions, many otherwise-qualified innocent spouses were held liable for taxes for which the other spouse should have been held responsible; 85 percent to 90 percent of these were women.

Last year, the IRS revamped the Innocent Spouse Relief program. Based in Florence, Ky., the Innocent Spouse unit was assigned increased staff and agents were provided training on domestic abuse and how to interview petitioners. The IRS also increased the statute of limitations to apply for relief to 10 years and relaxed the requirement that the innocent spouse did not know the return was incorrect when it was signed. Now the IRS is more likely to grant relief in cases of abuse or when one spouse had financial control over money matters during the marriage. Cases will also be evaluated to determine whether the innocent spouse signed the joint return while suffering from physical, psychological, sexual or emotional abuse.

To apply for Innocent Spouse Relief taxpayers must file Form 8857, which the IRS uses to begin its evaluation under a facts and circumstances test. Form 8857 contains questions about how involved the spouse was in the household’s finances, whether he or she assisted in preparing the joint tax return, and whether the spouse suffered from abuse.

Innocent Spouse Relief is one way to avoid joint and several liability, but the most straightforward technique is to not file a joint tax return at all. All married couples have the option of filing under the Married Filing Separately designation. In fact, the advantages of joint returns are not as abundant as is commonly believed, especially for two-income households where each spouse makes a similar amount. A joint return really only lowers the overall tax bill when one salary is responsible for the bulk of the income. However, those filing taxes under the Married Filing Separately designation are ineligible for certain tax breaks, including the Earned Income Credit, child and dependent care credits and the student loan interest deduction.

Tax professionals can provide assistance in determining whether a joint tax return or a Married Filing Separately return is best for your particular situation. In addition, with many more people now eligible under the Innocent Spouse Relief Program, seasoned tax professionals are recommended for the often long and complicated application process.

Thursday, October 25, 2012

Most small business owners have to make every dollar in their marketing budget count. Easier said than done in a world that offers such a variety of high-tech and traditional marketing tools. Maximizing the value you get from your investment often depends on your willingness to plan ahead, learn from past mistakes, and to develop and implement a consistent strategy to fully leverage all elements of your program. Here are a few ideas to get you started:

You must have a clear, consistent image in the marketplace. In terms of visual materials, this means there should be a consistent look to all your customer communications. Use the same logo (or company signature) the same typeface(s), and the same design style for ads, print materials, trade show literature, billboards, websites and online communications. This increases cumulative recognition – increasingly important in today’s world where consumers are bombarded with information. For this to work – and for you to get the maximum bang for your buck – it’s important that everyone who develops marketing or sales materials understands the importance of consistency. Having a pre-production sign-off procedure for all marketing materials will ensure that everything is consistent and meets your firm’s guidelines.

If you are promoting the same product or service to many different customers and need print materials, think modular. Develop a basic print layout with sections for the overall information that is useful to all your customers; then reserve a section or two that will have information specific to certain industries or customer segments. The tailored copy can be stripped into the basic layout – as required – in the print production phase. This approach can save significant time and money; and it works online, allowing customers to select tabs with the sections that are relevant to their specific industry or business needs.

Be realistic about what type of marketing material you need and in what quantity. Assess where your business leads are generated and measure the results of past programs. If your audience is tech-savvy and web-focused, your need for traditional print materials might be reduced. However, you might need product data sheets (as well as an e-catalog) accessible online that provide specific product features and benefits. Is your website easy to access and use on a handheld device (smartphone or tablet)? If possible, avoid registration or check-in procedures on your mobile website. They are fiddly and difficult to complete using a smartphone keypad. Make it as easy as possible for website visitors (mobile or not) to request more information by phone, online chat or mail.

If you are a small company and agencies are not within your budget, look for good creative talent in the freelance and self-employed pool. Check online, in professional directories and local Chamber of Commerce publications to identify freelance or self-employed marketing professionals. Review client references and work samples carefully, and make sure that you understand whether you are paying on a project or hourly basis.

Lastly, remember that critics are your best friends. If negative comments don’t reach you early enough, the dissatisfaction might show up in your P&L eventually. Solicit feedback and listen to it – the good and the bad. Find out which marketing tools worked and which ones didn’t, and use feedback surveys on your website to get opinions from your clients or customers.

Tuesday, October 23, 2012

The question is academic for the throngs who camped outside Apple stores to get their hands on the Apple’s latest smartphone – but do you really need the new iPhone5. First of all, improvements in smartphones have been incremental rather than earth-shattering since the 2007 launch of the first iPhone, which did change the game for all cell phones. This new release is no different. With this in mind, are the new features and benefits worth spending the money to upgrade? The answer depends on how you use your smartphone. Here’s a quick review of the major enhancements and who will benefit most.

If You Feel the Need For Speed

The new iPhone5 has a speedier processor – Apple claims it is twice as fast as its predecessor. If you use your smartphone for calls, messaging and emails, this might not be an issue for you; but if you like to play games or if you think your current smartphone is too slow, then this new model might be just what you need.

If You Use Your Smartphone as a Camera

The new iPhone5 has the same 8-megapixel sensor as the iPhone4S, but Apple has made a few improvements to overall image quality. Perhaps the most significant camera improvement is its speed. Focusing is instantaneous, and you can take shots in rapid succession. The new iPhone will also allow you to take panoramic images. If you recall how the camera functioned in the earlier iPhones, you will be amazed. This one delivers like you expect a real camera to perform.

If You Want a Bigger Screen

Perhaps the most obvious new feature is its bigger screen, expected to entice users who like to stream movies or video. The phone is the same width, but it is about 9 millimeters taller – giving the screen the right dimensions for wide-screen movies. Unfortunately, your old third-party apps will have space to spare until they are redesigned. When they are reconfigured, they will have more screen space, too. Whether the larger screen creates more video-streaming users remains to be seen. The bigger viewing area might not be sufficiently large for those who have the choice of using an iPad or competitors’ tablets.

If You Are Using an iPhone3 and Looking to Upgrade

If you have an iPhone3 or earlier model, you will probably want to bypass the iPhone4 and look at the Siri-voice assisted models. If you like to use your phone to find restaurants or other local services, the hands-free Siri feature is very useful. That being so, it makes sense to go straight to the latest model, which offers all the iPhone4S features plus more speed, a bigger screen, a better camera and a thinner, lighter design.

Downside

The phones are expensive. Even though Apple has not increased the price since its last launch, you will be signing up for a new data plan. Buying the phone is just part of your budget planning. Analysts suggest that video streaming on a cellular connection will gobble up a lot of data time, as will using the video chat application. And on that note, some industry experts think that video-streaming apps are threatening to overwhelm current network capacity. These experts have expressed concern that existing high-speed 4G networks will become overloaded if more video users jump on the bandwagon.

Tuesday, October 16, 2012

The Federal Reserve recently announced it would keep the federal funds rate at 0 percent to 0.25 percent at least through mid-2015. This nearly three-year timeline presents an excellent opportunity for Americans – both consumers and business owners alike.

Low interest rates make money less expensive to borrow and therefore increase the money supply available throughout the financial system. This currency strategy is designed to help spur the economy out of recessionary conditions.

For a small business, prolonged low interest rates are similar to cutting prices to encourage more foot traffic to a store. Typically, when sales revenues slow down, a firm will hold a sale or quote lower rates in order to drum up more business. Lower interest rates are designed to create a similar situation. By making it easier for you to borrow money at reasonable rates, you pay less money on the loan and invest more in the growth of your business. Significant cost savings can come from locking in a low interest rate loan, particularly if you’re considering making a major purchase that requires financing.

When you borrow money at less than the rate of inflation, it’s basically free money. The beauty behind using a bank’s money to finance purchases is that it enables you to maintain your current assets and investments in higher-performing assets – providing you with more flexibility and liquidity options. For small businesses in particular, the ability to fund high-ticket purchases or increase payrolls and jobs without impacting current cash flow can significantly contribute to a firm’s growth in a short time period.

The current three-year window of low rates provides the opportunity to invest in short-term, revenue-boosting investments for a long-term return. Funded improvements you might want to consider include:

Investing in technology to take advantage of social media, multimedia and sales opportunities via the web and mobile technology

Equipment

Vehicles

Commercial real estate

New store openings

Additional personnel

Refinancing of existing debt at lower rates to increase current cash flow

Low-Interest Rate Financing

The Small Business Lending Fund was established by the federal government in 2010 to provide $4 billion in funding to more than 330 qualified community banks. This effort was specifically initiated to stimulate small business lending. The SBLF is designed to give community banks financial incentive to make loans to credit-worthy small businesses with less than $50 million in annual revenues. Loans must be less than $10 million to qualify as small business lending under this program.

Furthermore, the State Small Business Credit Initiative was established in order to strengthen new and existing state programs that support lending to small businesses. This program has made approximately $1.4 billion in funds available to more than 150 state-run programs in 54 states and territories.

Combine Low Rates and Tax Deductions

In addition to enjoying lower rates on business loans, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 amended two tax advantages benefiting small business owners. The Code Section 179 deduction, which applies to leasehold improvements, restaurant and retail property, and new and used machinery and equipment, allows a business to treat the cost of qualifying property as an expense rather than a capital expenditure. The expensing limit is currently $139,000, and the cost of equipment limit is set at $560,000. The first year bonus depreciation deduction is 50 percent through 2012, but two recent proposals could increase the deduction to 100 percent through the end of the year.

Visit the Small Business Administration website to learn more about lending programs for which you might be eligible. The best way to take advantage of today’s low interest rates is to establish and maintain a strong working relationship with your bank or lending institution. It’s also a good idea to consult with your business or financial advisor who can collaborate with other professionals, such as a tax advisor, to help optimize your plans for future growth.

Tuesday, October 9, 2012

According to the U.S. Small Business Administration, more than half of entrepreneurships fail within the first five years of existence. Former small business owners cite a litany of reasons why their business didn’t make it, usually ranging from complaints about banks and the government to their allegedly incompetent partners. Although some of these reasons are legitimate, most small business failures are caused by a lack of planning and focus on the part of the owners – despite the fact that there are many experienced professionals willing to provide assistance.

The most common cause of small business failure is the market, or more specifically, the lack thereof. Surprisingly often, would-be entrepreneurs do not perform enough research to ensure that there is ample demand for their product or service at a price that will create a profit. It is vital that they test the market for their products before losing their savings in a doomed enterprise. Prospective entrepreneurs should start slowly to develop as much certainty as possible that their product will sell and their business will succeed.

Starting slowly is a valuable mantra that also exposes another reason why small businesses fail: excessively rapid expansion. Successful businesses that try to maintain a breakneck growth rate can quickly develop growing pains. Owners become overwhelmed and a once-profitable business becomes damaged by expanding too rapidly into unprofitable markets or taking on too much debt.

Borrowing too much money can also exhaust a new business’ cash cushion. Especially in the early stages of an enterprise, having cash on hand for unforeseeable events can often make the difference between success and failure. Businesses are cyclical, so there will always be up times and down times, but small business owners need to be able to survive the unexpected – a natural disaster, a lawsuit, the introduction of a competitor or the loss of an important customer or employee.

Small business owners also need to control their costs. Materials, software, wages, rent and state and federal taxes take an often underestimated bite out of profits. A solid business plan with realistic cost estimates can help put a new business on the path to success. In today’s business climate, lean companies are at a distinct advantage. The failure to negotiate good terms with suppliers and plan for cost overruns can leave a small business uncompetitive.

Another extremely common reason for small business failure is poor accounting practices. Many entrepreneurs are completely unprepared for the time and effort involved in tracking the income and expenses of their business. Invoices need to be sent out in a timely manner and accounts payable and receivable must be tracked meticulously. In addition, state and federal tax authorities require quarterly tax payments. Many entrepreneurs are unskilled accountants, mistakenly believing they can perform these tasks on their down time or on weekends. Such administrative tasks are not only essential for a successful business, they are also extremely time-consuming. New small business owners often become overwhelmed soon after starting business operations, but finances are ultimately the most important part of a new business. Not only does routine accounting have to be taken care of promptly, but the business needs a financial vision as well – a big-picture viewpoint that sheds light on the months and even years ahead. Many entrepreneurs are reluctant to seek professional help, mistakenly believing that they have to do it all themselves.

Another unfortunate reason for small business failure is the lack of a succession plan. What happens to the business if the owner gets sick or incapacitated? Are suitable replacements available for valuable managers, or will people be thrust into positions for which they are not prepared? Without a well-defined succession plan, power struggles and nepotism can quickly doom an otherwise successful business.

Small businesses fold for many reasons, but entrepreneurs who fail with one business actually have substantially increased chances of success on their next try. They learn valuable lessons about the importance of planning and focus and they realize their weaknesses, contracting with experienced professionals for assistance in helping make their business profitable. Successful entrepreneurs know that getting professional help in running a new business greatly increases their chances of survival.

Seek help from a financial advisor to get your business plan in good working order. He or she will be able to provide you with specific details about your business’ situation. With the right advice, you will be able to develop a small business that thrives.

Tuesday, October 2, 2012

In June, the U.S. Supreme Court upheld the constitutionality of Obamacare’s individual mandate by concluding that imposing a penalty for not purchasing health insurance is a valid exercise of Congress’ power to tax. As of Jan. 1, 2014, all Americans will be required to purchase either a private health plan or health insurance through a state exchange if they are not otherwise exempt or covered by their employer. The requirement does not apply to Americans age 65 and older who are covered by Medicare.

The penalties, which will be administered by the IRS, will be pro-rated based on the number of months during the year that an individual is not covered by health insurance, although there is no penalty if an individual is not covered for less than three months. Insurance companies will send their plan participants and the IRS a form confirming that the minimum essential coverage was held, which taxpayers will be required to attach to their tax forms beginning in 2015.

For the tax year 2014, the penalty for the entire year will be $95 per adult and $47.50 per child, up to a family maximum of $285 or 1 percent of the family’s income, whichever is greater. In 2015, these amounts increase to $325 per adult, $162.50 per child, and a family maximum of $975 or 2 percent of the family’s income. For 2016 and subsequent years, the full penalties will be $695 per adult, $347.50 per child, and a family maximum of $2,085 or 2.5 percent of the family’s income.

The nonpartisan Congressional Budget Office estimates that 4 million people will choose to pay the penalties instead of buying insurance. The belief is that these will mostly be younger Americans without children who believe they are healthy enough to go without coverage.

Certain individuals will be exempt from the insurance requirement. These include undocumented immigrants, individuals who are incarcerated, members of Indian tribes, people who are between jobs and without insurance for up to three months, and people with certain religious objections. In addition, people who calculate that their premiums will be greater than 8 percent of their family income, taking into account certain tax credits which would be gained from the lowest-quality plans in their state’s health exchange, will also be exempt from the insurance requirement and the penalties. Finally, individuals and families whose income is below the threshold required to file a tax return (currently $9,500 for an individual and $19,000 for a family) will not have to pay the penalties if they cannot prove they hold insurance.

The law states that the IRS cannot initiate any criminal prosecutions for failure to comply with the act, and no liens or levies can be placed on taxpayers’ property based solely on the failure to pay the penalty. The IRS intends to send letters to taxpayers notifying them that they owe the penalty, and it will also have the power to withhold future tax refunds. However, it is still unclear whether failure to pay the penalty will result in late payment penalties and interest imposed by the IRS. Regulations issued by the Department of the Treasury sometime in the next year should clear up this uncertainty.

The Affordable Care Act will still face more obstacles to its implementation as efforts to repeal its provisions intensify. But with the Supreme Court upholding the act’s constitutionality, the odds have greatly increased that the individual mandate will be implemented beginning in 2014.

Tuesday, September 25, 2012

When deciding upon a firm’s record retention procedures, it would be wise to consult federal and IRS regulations and state and local government record retention requirements. The IRS generally must assess additional tax within 3 years after the due date on a return. (So, keep records for 3 years.) A period of 6 years applies if the taxpayer omits items of gross income that in total exceeds 25 percent of gross income reported on the return. (Therefore, keep records for 6 years.) If a fraudulent return is filed or no return is filed, there is no limit to the period the tax can be assessed. (So, retain records permanently.)*

Thursday, September 20, 2012

If you’re like most owners of growing firms, you might wonder about the best way to protect your personal assets and conduct your daily activities. For some businesses, forming a corporation is the best solution. Others benefit most from the creation of a Limited Liability Partnership.

Suppose that you are the sole proprietor of a retail firm and a customer falls and gets hurt in your store. Your personal assets, such as your home, could be used to satisfy business litigation awards. When you have a general partnership (two or more people conduct a business), partners are not only liable for themselves, but also for actions of other partners. Insurance policies can protect you up to a certain point, but without a formal way to conduct business, you might still be open to risks.Limited Liability Partnership (LP or LLP)

This type of entity is a more formal way of doing business than a general partnership. Limited partnerships include both general and limited partners. Limited partners are usually investors with not much say in the business. An LLP can be formed after a general partnership has been set up and is working well. For example, a father and son own a business using an informal general partnership setup. However, now they need funds to make improvements and to open a new branch. While other family members and friends might be willing to help out, they’re not interested in the risks involved – so they choose to be limited partners.

The LLP is not a separate entity as far as taxes are concerned. This means that the LLP doesn’t pay separate income taxes, and profits/losses flow directly into partner’s tax returns. Note that an LLP is required to file an annual information return using Form 1065 and K-1s to all partners.

The rules about opening an LLP and documentation vary by state. Check out with the Secretary of State or other department for registration and compliance requirements. In California, the LLP structure is used primarily by certain professional services, and firms must pay an annual fee of $800.

One of the main advantages of an LLP is that it’s easy to attract investors, who might become silent partners without dissolving the original general partnership. On the other hand, the chief disadvantage of this type of structure is that you still have general partners who have liability over the business. Death of any partner dissolves the partnership.

Corporation

A corporation is a separate entity created at the state level. A corporation has rights and liabilities that are separate from the owners, shielding them from personal liability for business activities – a major advantage of a corporation. If a product hurts a customer and he sues, corporate owners are not at risk of losing their assets. A corporation has stockholders as owners, and it distributes profits and losses through dividends. Income doesn’t automatically flow through the owners.

It’s easy to transfer ownership through transference of stocks, allowing for more flexibility and the possibility of endless life. When a stockholder dies, the effect on the business is not as high as in the case of a sole proprietorship or a partnership. A corporation is an older, more traditional entity conducting business in the United States. Banks and investors tend to be more comfortable with a corporation rather than a Limited Partnership or Limited Liability Company.
Corporations file separate tax returns and pay taxes at their own rate. This often causes the problem of double-taxation of owners, who are taxed on dividends while corporations are taxed on earnings. Certain corporations do qualify with the IRS to be S-Corporations and are able to avoid the corporate taxation.

Professionals, such as doctors and attorneys, form professional corporations that offer lower liability protection for negligence or malpractice. This sub-type of corporation is preferred when compared to a general partnership, where professionals are liable for the malpractice of other owners.

A disadvantage of corporations is the work involved dealing with specific legal and financial requirements at both state and federal levels, such as holding annual members meetings. Also, some states charge corporations fees. For example, corporations operating in California pay $800 a year in fees even if they have losses or are based in other states.

Limited Liability Company (LLC)

LLCs are a very popular structure for a firm because it’s simple and easy to set up, providing business owners with flexibility not available with the other types of entities. It allows the benefits of liability protection similar to a corporation and it offers the option of a “pass-through” taxation, like a partnership.

An LLC with only one owner can be considered to be a “disregarded entity” with profits and losses flowing directly into the personal tax return of the owner. The LLC can also choose to be treated as a corporation for income tax purposes – this level of flexibility can be very appealing to many business owners. There is no need to hold annual meetings or to submit minutes with this type of entity. However, it does need to have bylaws or an operating agreement to avoid losing liability protection.

An LLC is not a corporation, and its creation is a bit different than a corporation. Some states, such as California, don’t allow for licensed professionals to form professional limited liability companies (PLLC). Certain circumstances, such as making the company insolvent because of excessive partners’ distributions, can make owners personally liable for the debts of the LLC.

Note that when a member of the LLC dies, the LLC may dissolve, depending on the state the company resides in and its operating agreement. Also, note that an LLC is a relatively new form of business and state laws continue to change regarding this type of entity. Banks and investors may prefer to invest in a corporation that they are more familiar with than an LLC entity.

As you consider the types of entities available for business owners who want to formalize their operations and to protect themselves from liability, it’s always a good idea to talk to professionals familiar with the various options. Don’t wait until your assets are at risk to take care of the liabilities of owning a business – be proactive and start to consider your options now.

Tuesday, September 18, 2012

The very assets that make entrepreneurs successful can turn into handicaps when their business ventures take off and they assume the role of boss. Going from being responsible for everything and being a hands-on player in every aspect of the business to having employees to supervise and delegate is a giant leap. Most of us make the transition in stages, but even so we have to adapt to change or we could end up sabotaging the success we’ve worked so hard to build.

There’s lots of help out there. This is not a new issue, and the smartest business owners know the benefits of learning from someone else’s often costly mistakes. You can begin by looking in the business section of your bookstore (bricks and mortar or online) or check out courses or seminars that are available at local business associations, business schools or colleges in your area.

In the meantime, here are a few ideas to help you determine how your personality can help or hinder your transition, and some ideas on how to side-step some of the biggest traps.

If you are a natural go-getter and tend to have very strong ideas about what you want, there’s a fairly good chance you find delegating difficult. Entrusting decisions affecting your company to someone else is a challenge if you have been responsible for everything since start-up. For delegating to work at all, it is important to recognize that trusting someone to get the job done correctly means relinquishing the right to micromanage. Everyone has their own working style. Hire people you believe have the necessary talent and skills, provide clear direction on the outcome, budget and timeline, and then step aside. Be available to answer questions or provide feedback, but leave how to tackle the job up to them. Trust and confidence in your employees are key.

Good leaders are consistent. That doesn’t mean you don’t change marketing strategy if conditions merit it; but it does mean that when plans and strategies are set and the implementation has begun, you don’t change your mind mid-course without some very solid reasons.

Your team needs a strong sense of purpose. It is up to you to make sure employees know why the products or services the company produces are important, and how each person is critical to the company’s success. Also, your employees need to know where you stand on core beliefs and values, and what is expected of them. A leader must be up front with all employees.

Entrepreneurs have high expectations of themselves (and others), and so it’s easy to forget that recognition for a job well done is important in the workplace. Regular performance reviews, constructive feedback and consistent methods of measuring and rewarding success are important to your employees. The old saying “praise publicly; critique privately” never goes out of style. Impulsive outbursts or scathing criticism usually create long-lasting harm and might damage relationships with employees you wish to retain.

Learning to let go, to manage employees and to evolve into a first-class business leader is not an overnight transition. Those who succeed are entrepreneurs who recognize that long-term business success requires an open mind and a willingness to continue to learn new business skills.

Thursday, September 13, 2012

We all know to sidestep the misspelled email from a temporarily insolvent Nigerian prince who needs a little help and the details of our bank account. This type of clumsy email con typically goes out to millions of accounts hoping to trap a few unsuspecting recipients. The thieves sometimes highjack an official looking corporate logo or use official-sounding language, but a closer look usually reveals clues that something is just not right, such as spelling errors or odd language. Perhaps the most obvious tip-off is that the real sender would never ask a customer for this type of sensitive information via email.

Email fraud has become bolder and more sophisticated than these efforts. From broad-based mass mailings, cyber fraud is being committed by highly sophisticated criminals who use research to launch targeted cyber attacks also known as spear phishing – against targets that might include government agencies or major corporations. To give you an idea of the audacity of these criminals, a recent attack began with an email that appeared to be a legitimate inquiry from the Internal Revenue Service. Hackers have also used spear phishing tactics to crack into data files at a leading military contractor.

What characterizes spear phishing is that it is very well camouflaged. It appears to come from a colleague or trusted source and contains a plausible request. It looks authentic and can be very difficult for recipients to detect. In general, spear phishing has several distinct targets – major corporations, government organizations or individuals. Here are some examples of them.

Phishing messages to individuals will generally have some element of urgency – perhaps asking a recipient to handle a billing problem or an overdraft. Many of us pay our bills online, and although we would be suspicious of an email asking us to resend credit card or bank account data, we might click on a link to fix a billing mix-up involving our address. In doing so, we might be giving crooks the means to download malware that will relay passwords and other confidential information at a later date.

Sometimes, cyber-criminals target individuals using fake Gmail login screens hoping to find work emails that will enable them to enter a corporate email system. Targeting an individual who can provide entry into a much larger and more lucrative organization is known as whaling.

Cyber thieves will assume just about any identity to get the access they want. They create credible looking websites and communications purporting to be from respected organizations as varied as leading banks and social networks, to major government agencies including the IRS and the FBI. The goal is always the same – to rob businesses and individuals. Some of the scams pretending to be the IRS are amongst the nastiest. Timed to hit after filing deadlines, the scammers email victims – often small businesses and self-employed people – and advise them that their tax payments did not go through. Using the scare factor of the IRS name, these fraudsters have been quite successful despite the fact that the IRS never uses email to initiate contact and warns taxpayers on its website specifically about such scams.

Fighting Back

Leaders in the security industry admit it is hard to battle this level of sophistication. The industry is always playing catch-up, trying to stanch another leak in the dam. DMARC.org (Domain-Based Message Authentication, Reporting and Conformance) – a collaborative anti-phishing effort involving leading social networks and technology and financial services companies – is working to create better authentication systems to protect email domains. In the meantime, we must stay alert and recognize that we are all potential victims no matter how technically smart and business-savvy we are.

Tuesday, September 11, 2012

By early summer of this year, 30-year fixed mortgage rates had fallen to 3.55 percent – their lowest level in 40 years. One of the reasons rates have remained low is that investors continue to pour money into relatively safe Treasury bonds – the securities that guide home loans.

Up until recently, low mortgage rates weren’t as meaningful because the real mortgage rate had increased significantly. The RMR is the rate at which home prices are increasing higher than mortgage rates. It is calculated by subtracting the rate of a home’s appreciation or depreciation from the nominal mortgage rate. Ideally, you’d like your RMR to be in negative territory. For example, a 3.5 percent mortgage rate minus an 8 percent appreciation rate gives you a negative 4.5 percent real mortgage rate. That’s why no matter how low mortgage rates go, it doesn’t make sense to purchase real estate while prices are still dropping because you lose equity even as you close the deal.

However, a recent report from Zillow concludes that residential real estate has turned the proverbial corner and prices are poised to rise. Now that home prices are rebounding, the RMR is back in negative territory. This puts home buyers in the unique position to buy property while mortgage rates and prices are still low.

This favorable scenario, combined with new mortgage products designed to help bolster the industry, creates a good opportunity to buy or refinance for a better positioned mortgage down the road.

Assumable Mortgage

An assumable mortgage allows a buyer to assume the mortgage of the seller with the exact same terms. The buyer must go through the same application process in order to be approved by the lender to assume the balance of the mortgage with the same interest rate, payment schedule and remaining term at closing.

The reason an assumable mortgage is becoming more popular now is because interest rates are historically low. As they begin to rise, you will be able to offer your home for sale at today’s currently low rates, which will make your home more attractive than others on the market. Note that loans backed by the Federal Housing Authority are typically assumable for fixed-rate mortgages but not variable-rate mortgages and home equity lines of credit. Also be aware that if you are behind on payments, your lender’s agreement might disallow your assumable loan to be assigned to a new buyer.

Shorter-Term Mortgages

The Great Recession and its ensuing layoffs, salary freezes and market volatility have set many Baby Boomers back in their retirement savings plans. Refinancing can provide the opportunity to replace a current loan with a shorter-term mortgage so you can lower your interest rate and pay off your mortgage faster. In 2011, 34 percent of refinancers chose to replace their 30-year fixed-rate loan with a 15- or 20-year loan.

Rates on a 15-year loan are about one-quarter to one-half percent less than a 30-year term, but the savings can be dramatic. For example, refinancing a $100,000 mortgage to a 15-year term at a 3.75 percent rate would yield about $30,000 in interest savings compared to a 30-year loan. Plus, you can pay off the mortgage in half the time.

Customized Terms

To accommodate more recent demand for shorter-term mortgages, some lenders will allow you to choose the term you’d like for a mortgage, typically anywhere between 8 to 30 years. Especially for pre-retirees, this is a good opportunity to set your term to the date you want to retire – ensuring you’ll be mortgage-free at that time. It also allows homeowners to take advantage of today’s lower mortgage rates and lower home prices without having to assume another 15- or 30-year loan. A custom term positions you to pay off the new mortgage in the same time frame as your original mortgage.

Friday, September 7, 2012

With the presidential campaign getting into full swing, President Obama’s signature piece of legislation – the Patient Protection and Affordable Care Act, informally known as Obamacare – will come under increased scrutiny in the months ahead. Both sides will debate the Act’s implications, but its funding mechanisms are already in place.

The Supreme Court upheld the constitutionality of the PPACA on June 28 based on the federal government’s taxing power. The Act requires that all individuals not covered by an employer-sponsored health plan or a public insurance program to purchase health insurance or pay a penalty. In exchange, insurance companies are required to cover all applicants and offer the same rates to them, regardless of pre-existing conditions or gender. The Act will provide health insurance coverage for 32 million currently uninsured Americans.

The PPACA will be funded through a variety of fees, spending offsets and taxes. The fees include annual charges to health insurance providers and manufacturers and importers of branded drugs, while the spending offsets require reduced funding for Medicare Advantage policies, reduced Medicare home health care payments, and certain reduced Medicare hospital payments. The most debated funding mechanisms, however, are the increased taxes.

The PPACA imposes a 2.3 percent annual excise tax on manufacturers and importers of certain medical devices, which is intended to raise $20 billion over the next 10 years, according to the non-partisan Congressional Budget Office. The Act also calls for a 10 percent sales tax on indoor tanning services.

Individuals will face increased taxes on high-cost insurance policies, a reduced ability to use the medical expenses deduction on their tax forms, limited annual contributions to flexible spending arrangements for cafeteria plans, and for high-income taxpayers, an increased Medicare tax and a separate investment income tax.

Subscribers to high-cost insurance policies, or so-called Cadillac plans, will face a 40 percent excise tax on annual health insurance premiums over $10,200 for individuals and $27,500 for a family. That provision is intended to raise $32 billion over 10 years.

The adjusted gross income floor on the medical expenses deduction will be raised from 7.5 percent to 10 percent, meaning that only medical expenses that exceed 10 percent of the taxpayer’s adjusted gross income will be deductible. The CBO estimates it will raise $15.2 billion over 10 years.

The most common type of flexible spending arrangement for a cafeteria plan is the Medical Expense FSA, which allows an employee to set aside a portion of earnings to pay for qualified expenses, such as deductibles and copayments.
Previously, there was no federal limit on contributions to such a plan, although employers usually had a $5,000 annual ceiling. Under the PPACA, the annual contribution limit will be $2,500. The provision is effective Jan. 1, 2013, and will raise an estimated $13 billion over 10 years.

Finally, also effective Jan. 1, 2013, the PPACA imposes an additional Medicare tax of 0.9 percent and a new 3.8 percent tax on unearned investment income for single filers with income over $200,000 and joint filers with income in excess of $250,000. Most taxpayers currently pay 1.45 percent of their wages to support Medicare through the Medicare payroll tax. The new 0.9 percent increase will be imposed on wages in excess of the threshold amounts. The investment income tax targets dividends, interest, royalties, capital gains, annuities and rents for the same high-income taxpayers. These provisions are intended to raise by far the most revenue under the PPACA, at an estimated $210.2 billion over 10 years.

The CBO estimates that the PPACA will actually trim the federal budget deficit over the next 10 years. Voters will make their own decisions about the worthiness of the Act as they sort through the rhetoric from both sides in the presidential race.

Tuesday, September 4, 2012

Are you running a business or is it a hobby? Although in reality the lines may blur, it makes a big difference on your taxes.

According to the IRS, the incorrect deduction of hobby expenses accounts for a portion of $30 billion per year in unpaid taxes and is a frequent issue in IRS audits.
The IRS defines a hobby as an activity that is not engaged in with the expectation of making a profit, while a business is an activity carried out with a reasonable expectation of making one. When engaged in a hobby, a taxpayer can only deduct expenses up to the amount of income made from the hobby; and even then, hobby and other miscellaneous expenses itemized on Schedule A must add up to more than 2 percent of the taxpayer’s adjusted gross income before they are deductible.

On the other hand, a taxpayer can generally deduct all the ordinary and necessary expenses for conducting a trade or business. Taxpayers run into trouble when they deduct these business expenses and then discover that the IRS believes they are actually engaged in a hobby.

The IRS has two tests to determine whether an activity is a business or a hobby. First, it is presumed that an activity is being carried out for profit if the activity actually makes a profit during at least three of the last five years, including the current year.

If a taxpayer fails the profit test, then the IRS uses a facts and circumstances test to determine whether an activity constitutes a business. This test weighs several different factors that necessarily involve the judgment of IRS employees, but which can also suggest potential arguments a taxpayer might use when appealing the findings of an audit.

First, the IRS will try to determine whether the activity is carried out in a businesslike manner by looking at how records are kept, whether the taxpayer promotes the business, and if he or she tries to hold down costs as much as possible. Is there a business plan or an outline of when the taxpayer reasonably expects to make a profit? Is there a separate business bank account?

Second, does the time and effort put into the activity indicate the intention to make a profit? The IRS will try to determine whether the taxpayer depends on the income from the activity.

Third, if there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the startup phase of the business? The IRS recognizes that many businesses do not expect to make a profit early in their life cycle, but they will want to see if the taxpayer has changed any methods of operation to improve profitability.
Fourth, the IRS will look at the taxpayer’s past. Has he or she made a profit from similar activities in the past? Does he or she have prior business experience? Does the taxpayer have the knowledge needed to carry on the activity as a successful business?

Finally, the IRS will look at whether the activity has made a profit in past years and whether there is a reasonable expectation of future profit from the appreciation of assets used in the activity.

Taxpayers often find themselves caught between a rock and a hard place in determining whether an activity is a business or a hobby. If you call it a business but don’t make a profit, you can’t deduct your business expenses. But if you call it a hobby and make money, then you owe taxes. Tax professionals can provide invaluable advice to help create the records necessary to support an argument that an activity constitutes a business, and they know the intricacies of IRS regulations so they can effectively represent you in an audit.